Bad Cards for CEOs of Limited Liability Companies – No Common Protection Against Dismissal

Nina Marcus, associate of our Frankfurt Employment team, has published an article on a decision of the German Federal Employment Court (as of 21 September, 2017 - file# 2 AZR 865/16) in the online magazine Deutscher AnwaltSpiegel. She summarizes the decision according to which one of several managing directors cannot invoke the first section of the German Act on Protection against unfair Dismissal law. The reason for this is the negative fiction according to Sec. 14 para. 1 n° 1 German Act on Protection against unfair Dismissal (Kündigungsschutzgesetz - "KSchG"), according to which all regulations of the first section in companies of one legal entity do not apply to the members of the body appointed to legally represent the legal entity. At the time of termination, the plaintiff was still appointed as one of several managing directors. The subsequent resignation of his office had no influence on the outcome of the proceedings; the action has already been dismissed in both lower courts. Due to the special position of representatives of governing bodies who are protected by general clauses under civil law against moral or unfaithful exercise of the right of termination, Sec. 14 para. 1 n° 1 KSchG also does not violate the German Constitutional Law. At the same time, the standard is compatible with EU law, since Union law is limited to the regulation of individual, special areas of protection against unfair dismissal. Even an internal limitation of the power of representation does not lead to a restriction of the effectiveness of Sec. 14 para. 1 n° 1 KSchG, since this remains without legal effect for the legal representation in external relationships (which is not restrictable according to Sec. 37 para. 2 German Act on Limited Liability Companys - "GmbHG"). The Federal Labour Court did not decide on the legal situation in the event of resignation or revocation before the dismissal is declared, as this constellation was not relevant to the decision in the present case.

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